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Inside the Obama Deal on Fuel Economy

The President will announce a deal on fuel economy standards for cars and light trucks today, boosting the average fuel economy to 54.5 MPG by 2025.

The agreement would require U.S. vehicle fleets to average 54.5 miles per gallon or 163 grams per mile of carbon dioxide equivalent by 2025, which represents a 50 percent cut in greenhouse gases and a 40 percent reduction in fuel consumption compared with today’s vehicles, according to sources briefed on the matter.

While the proposal falls short of the 62-mpg standard that environmental and public health groups had lobbied for, it represents a significant step in federal curbs on tailpipe pollution.

It would require a 5 percent annual improvement rate for cars between 2017 and 2025. Light trucks would be required to have a 3.5 percent yearly efficiency improvement between 2017 and 2021, rising to 5 percent between 2022 and 2025, according to the sources, who asked not to be named because the details have not been announced publicly.

The Administration had already secured a higher fuel economy standard through 2016, and this increased number builds on that. It’s not quite the standard that some enviro groups sought, but it’s an 100% improvement on current law (we’re at about 27.3 MPG now), and therefore does represent a leap forward.

The one problem looming is a “re-opener” provision that could change the deal come 2021.

At issue is a “technology re-opener” that allows auto manufacturers to fight the standards after 2021 in the hopes that they can re-negotiate rules with a future administration that may be more lenient on the industry. The re-opener potentially gives auto companies an incentive not to develop technologies immediately so they can argue down the road that the standard can’t be met.

Under the current timeline, the administration’s proposal would increase fuel efficiency for cars by 5% per year and increase efficiency of light trucks by 3.5% per year through 2021. After 2021, standards for light trucks would climb to 5% through 2025 – bringing the efficiency of the entire U.S. vehicle fleet to 54.5 mpg from today’s 27.3 mpg. Those are the highest standards proposed since 1987. The most recent standards passed in 2009 require the nation’s fleet to average 35.2 mpg by 2016.

Bringing light trucks into the deal is a good idea. But the re-opener could prove problematic and should be watched. Obviously a future President could simply stop enforcement on this and it wouldn’t matter at all. But this deal got done because California threatened to put forward its own standard. And I imagine future California governors would continue to threaten that in the future. So there’s reason to believe that this could be durable.

But will it work? Not as efficiently as a carbon tax, says Brad Plumer, but better than anything on the table right now.

Judging by an earlier EPA estimate, the regulations could reduce U.S. oil consumption by nearly one billion barrels per year by 2025—roughly equal to all of our imports from Saudi Arabia, Libya, and Nigeria in 2009. And it won’t require wildly futuristic technology […]

Trouble is, it’s not always that simple. The cars that actually drive on the road rarely achieve the mileage advertised. The laboratory tests used to measure mileage—testers run the cars on giant treadmills—were largely designed in the 1970s for less powerful cars that didn’t have air-conditioning. Jim Kliesch, a senior engineer at the Union of Concerned Scientists, told me that a sticker mileage of 54.5 mpg, for instance, would likely translate into about 39 mpg on the road […]

But that’s all just to say that CAFE standards aren’t flawless—not that they don’t work. It’s true that most economists will insist, again and again, that it would be much more efficient to just impose a higher gas tax at the pump and let the market figure out what cars people want to buy. It’s also true that CAFE doesn’t give people incentive to drive less, the way a gas tax would. But, at the same time, a gas tax isn’t on the table. And, bumbling or no, CAFE has been very effective historically at reducing gasoline consumption and boosting mileage—often more effective than high oil prices. At any other time—and if it weren’t for the looming financial apocalypse right now—that would be considered a big deal.

I think that’s the best way to look at this. It’s less-than-optimal, but because it’s such a leap forward, it’s likely to work pretty well at increased fuel economy and reducing oil use. That’s good for consumers and the planet, and could spur increased production and consumption of fuel-efficient cars.

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David Dayen

David Dayen